Performance-Based Turnover on Corporate Boards

52 Pages Posted: 5 Jun 2018

See all articles by Thomas W. Bates

Thomas W. Bates

Arizona State University - Department of Finance

David Becher

Drexel University

Jared I. Wilson

Indiana University - Kelley School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: May 2018

Abstract

We document an economically significant relation between director turnover and prior firm performance. This relation manifests in idiosyncratic stock returns consistent with relative performance evaluation and the monitoring of actions attributable to directors. The director turnover-performance sensitivity increases substantially throughout the 2000s, and varies with a number of governance characteristics, most notably with the presence of an active external blockholder. Directors who leave firms following poor performance are significantly less likely to obtain new directorships in the future. In sum, the threat of replacement for poor firm performance has become an increasingly significant incentive for the directors of public corporations.

Keywords: director turnover, firm performance, board seats, replacement directors

JEL Classification: G34, J23

Suggested Citation

Bates, Thomas W. and Becher, David and Wilson, Jared I., Performance-Based Turnover on Corporate Boards (May 2018). Paris December 2018 Finance Meeting EUROFIDAI - AFFI. Available at SSRN: https://ssrn.com/abstract=3190588 or http://dx.doi.org/10.2139/ssrn.3190588

Thomas W. Bates (Contact Author)

Arizona State University - Department of Finance ( email )

W. P. Carey School of Business
PO Box 873906
Tempe, AZ 85287-3906
United States

David Becher

Drexel University ( email )

3220 Market Street
1127 Gerri C LeBow Hall
Philadelphia, PA 19104
United States
215-895-2274 (Phone)
215-895-2295 (Fax)

Jared I. Wilson

Indiana University - Kelley School of Business ( email )

Kelley School of Business
801 W. Michigan Street
Indianapolis, IN 46202
United States
317-278-4715 (Phone)

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